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Profitable Fannie Mae Crosses Bailout Threshold with 4Q Dividends

FEB 21, 2014 8:40am ET
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Fannie Mae will pay the Treasury Department $7.2 billion after reporting an eighth consecutive quarterly profit, pushing its total dividend payments above the amount of government aid it received after the financial crisis.

The mortgage-finance company, which is operating under federal conservatorship, had net income of $6.5 billion for the three months ended Dec. 31, compared to net income of $7.6 billion for the same period one year ago and net income of $8.5 billion in 3Q13. The latest results bring earnings for 2013 to $84 billion, the highest ever for the 80-year-old company, Washington-based Fannie Mae said today in a filing.

"We expect to remain profitable for the foreseeable future," the company said in the filing. "While we expect our annual earnings to remain strong over the next few years, we expect our net income in future years will be substantially lower than our net income for 2013."

Fannie Mae and Freddie Mac were seized by regulators in September 2008, just before the failure of Lehman Brothers Holdings Inc., amid losses that pushed them toward collapse. The companies, which provide liquidity to the mortgage market by buying loans and packaging them into guaranteed securities, have returned to profitability as the housing market recovered and they raised fees.

After its latest dividend payment, Fannie Mae will have sent the Treasury a total of $121.1 billion, compared with the $116.1 billion of federal aid it received. The U.S. also has a $1 billion "liquidation preference" in Fannie Mae stemming from the initial $1 billion in senior preferred stock the Treasury obtained in 2008, which the company counts as part of the total aid package.

The firms' reversals of fortune have complicated the debate over their future as lawmakers in both houses of Congress work on measures to wind them down.

Stakeholders including Perry Capital LLC and Fairholme Funds Inc. have sued the U.S., challenging an arrangement under which the government takes all quarterly profits from Fannie Mae and Freddie Mac, counting the money as a dividend and not as a repayment of aid. The lawsuits charge that Treasury is expropriating the value of its investors' preferred shares.

Meanwhile, Bill Ackmanís hedge fund, Pershing Square Capital Management, took stakes in Fannie Mae and Freddie Mac in November, and said it may seek talks with management, shareholders and the government.

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